The BBC's coverage of the Israeli-Palestinian conflict is "incomplete" and "misleading", including failing to adequately report the hardships of Palestinians living under occupation, an independent review commissioned by the corporation's board of governors has found.

The report urges the BBC to be bolder in setting a policy for using the word "terrorism" to describe acts of violence perpetrated against either side and suggests a senior editorial figure should be appointed to "give more secure planning, grip and oversight".

The latest of several reports into contentious areas of the BBC's news provision, it praised the quality of much of its coverage and found "little to suggest deliberate or systematic bias" but listed a series of "identifiable shortcomings".

Chaired by the British Board of Film Classification president, Sir Quentin Thomas, the review said output failed to consistently "constitute a full and fair account of the conflict but rather, in important respects, presents an incomplete and in that sense misleading picture".

The panel, which also included former ITN chief executive Professor Stewart Purvis, said the BBC should not let its own requirements of balance and impartiality become a "straitjacket" that prevented it from properly relaying the "dual narrative" of both sides.

In particular, it highlighted a "failure to convey adequately the disparity in the Israeli and Palestinian experience, reflecting the fact that one side is in control and the other lives under occupation".

On the emotive issue of whether acts of violence perpetrated against either side should be called "terrorism", the review said the BBC should use the term because it is "clear and well understood" and that once it had decided on a policy for the correct use of language it should be more consistent in applying it.

Like other major media organisations, the BBC regularly deals with a flood of complaints from both sides.

An internal BBC News review, led by senior editorial adviser Malcolm Balen, led to greater resources being allocated to the Middle East and the appointment of a specific editor, veteran foreign correspondent Jeremy Bowen. But the review said more should be done to provide a stronger editorial "guiding hand".

The BBC should do more to put the conflict in context for viewers, it said. This could include doing more to direct viewers to resources offering more depth and background. Too often, it suggested, news stories were chosen on the basis of the pictures available to accompany them.

The recommendations met with some disquiet among BBC News managers, who felt the appointment of a senior editorial figure to oversee all output on the topic would contradict the findings of a review following the Hutton inquiry.

"We are confident we have the right editorial structures and processes in place to provide high quality, impartial journalism and to ensure we continue to make progress in developing the authority and comprehensiveness of our output," said BBC News management in a statement.

The Council for Arab-British Understanding said "the panel quite correctly highlighted that there was little reporting of the difficulties faced by Palestinians in their daily lives".

Daniel Shek, of the British Israel Communications & Research Centre, said: "The report argues that the Israelis and Palestinians are not on equal terms, since the Israelis possess a fully functioning state and the Palestinians do not. It then implies that an imbalance in BBC coverage could be acceptable. If such an argument absolves the BBC from offering balanced reporting then it is a slippery slope towards biased coverage."